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American miner set to divest Australian iron ore

Peter Ker

Cliffs is profitable, having made $242 million in 2013, according to ASIC reports. Photo: Bloomberg

The fifth biggest iron ore business in Australia is in limbo after an apparent boardroom coup saw a hedge fund take control of American company Cliffs Natural Resources.

Cliffs has struggled for profitability in recent times as prices for its two main products, iron ore and coal, slumped. The austere conditions have prompted some shareholders to campaign for a change of control and a break-up of the assets.

Activist hedge fund Casablanca Capital led the campaign and claimed it had taken control of the Cliffs board at a meeting of the miners' shareholders on Tuesday night (AEST).

The official results of the vote have not been published, but Casablanca said six of its representatives had been voted onto the 11-member board of Cliffs.

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Casablanca has long pushed Cliffs to raise its dividend and offload foreign assets, which could mean its Australian iron ore assets will soon be sold.

Cliffs mines about 11 million tonnes of iron ore per year across three deposits in Western Australia, and Credit Suisse analyst Nathan Littlewood said the assets were among those likely to be sold.

ASIC records show the business is profitable, having made $242 million in the 2013 calendar year.

But the assets, which were once owned by BHP, may be past their best, with Cliffs previously suggesting that iron grades were declining while increasing amounts of waste ore were needing to be moved.

Cliffs reported its local assets as having production costs of about $56 per tonne during the June quarter, higher than that reported by Atlas ($49 to $52 per tonne) and Fortesque ($34.03 per tonne) for the same quarter.

In a note to clients, Mr Littlewood suggested that listed companies such as Mineral Resources or Cazaly Resources could be a good fit.

"It is not the sort of asset that strategic or Chinese SOE buyers generally get involved in," he said. "A more likely buyer, in our view, would be a nearby corporate that sees some value in Cliffs' infrastructure footprint."

Mineral Resources chairman Peter Wade said the events in Cleveland had caught his attention.

"We own adjacent tenements so we would be interested to talk to them, but there has been no discussions at the present time,'' he said. "Like everyone else, we will be waiting to see what the new board of Cliffs in the US determines as being their best way forward."

Mr Littlewood said Casablanca would try to sell the Australian assets for between $US1 billion and $US1.5 billion, but the market value was possibly closer to a range between $US400 million and $US200 million. He tipped early 2015 as the best time to divest the assets.